Per the US Bureau of Economic Analysis (BEA), the US economy shrank 31% in the second quarter of 2020. This is not surprising, given the rout in food services (-88.4%), healthcare & social assistance (-48.1%) and durable goods (-43.3%). However, the financial services, including insurance sector was in positive territory (11.9%).
Unlike the 2008 recession, this time around the financial services sector has not only survived, but also may help catalyze the recovery, faster than many of us may have expected.
There are powerful reasons why the banking sector is likely to help usher in a quick recovery.
Firstly, US consumers have displayed a strong willingness and ability to meet their debt obligations despite severe hardships wrought by the pandemic. This trend to pay down debt even in the first quarter of 2020. Consumer debt dropped significantly in Q2 2020. Overall, consumer debt in August, fell by US$ 7.2 billion, which amounted to seasonally adjusted annual rate of 2 percent. (US Federal Reserve, Oct 2020)
Secondly, the federal stimulus payments have helped. Consumers used the money judiciously to buy essentials and pay down their debt. It is worth noting here that many who are eligible for forbearance have instead chosen to pay down their balances. This behavior helped banks reduce delinquencies and consequent charge offs.
Thirdly, given the new dynamics in consumer payment behavior, banks are more than likely to reassess their tight lending policy. If banks can jumpstart the lending process, albeit in a responsible manner, it may provide a beacon of hope for the overall recovery process.
While it is too soon to predict a full recovery, the banking sector appears to be able, willing and ready to catalyze a recovery America is eagerly waiting for.